Oil prices up as U.S. stocks dip

Oil prices rose another 2.6 per cent yesterday as the government said U.S. fuel stocks have contracted further ahead of the summer when demand for gasoline rises.

U.S. light crude rose 67 cents to $29.17, extending a rally that has pushed prices up 15 per cent in the last week.

Benchmark London Brent blend for June delivery was up 85 cents to $26.75 per barrel, hitting a six-week high.

Prices rose as the U.S. government said crude stocks fell 2.7 million barrels last week as refineries burned oil to pump out more gasoline for summer vacation driving needs.

U.S. crude stocks are some 40 million barrels, or more than 12 per cent, below last year. Stocks of clean-burning reformulated gasoline, used in a third of the nation's pumps, are over 20 per cent below 2002 levels.

"The underlying market is firmer as stocks are lower than anticipated going into the driving season," said Steve Turner of Commerzbank. Oil prices have risen sharply from 5-month lows struck late last month as increased production from Opec oil producers during the war in Iraq failed to rebuild U.S. inventories as much as expected.

Renewed concerns over security of Middle East supply has also boosted prices after Monday's suicide bombings in Saudi Arabia. Global supplies are being capped by the lack of supply from Iraq, which has not shipped oil since mid-March.

While Iraq's oil production is recovering, no entity in Baghdad has the legal authority to export the oil. The IEA said low stocks meant Opec should not need to cut output when it meets next month, having agreed in April to eliminate extra pre-war output pumped to compensate for lost Iraqi exports.

Meanwhile, gold gained yesterday as the dollar remained close to four-year lows against the euro and a leading U.S. investment bank tipped gold stocks.

Spot gold was quoted at $353.35/354.05 an ounce at 1537 GMT, up from $349.65/350.40 last quoted in New York on Tuesday. It traded as high as $354.15, its firmest level since March 11.

"The fresh emphasis on geo-political risk is helping in part to underpin the market through investment-oriented buying. The general tone in the professional market is constructive," said the industry-backed World Gold Council.

Gold was fixed in the London afternoon session at $353.55 an ounce, up from the morning fix of $348.90.

Gold was also fanned higher when news circulated that positive research on gold stocks had been released at a major U.S. investment bank. This in turn sparked a round of stop-loss buying that sent gold to a two-month high, traders said.

The euro fell against the dollar and yen on investor concern the 12-nation currency's rally will curtail economic growth and lead the European Central Bank to cut interest rates next month.

The euro dropped to $1.1508 at 2:10 p.m. in New York from $1.1532 late yesterday, after earlier falling as low as $1.1471.